By Avi Salzman
European oil-and-gas companies have rarely beaten their American counterparts in stock performance over the past few years. Now, the thinking goes, it may be time to join them -- at least in terms of the location of their stock listings.
TotalEnergies CEO Patrick Pouyanné told analysts on the company's earnings call on Friday that it is considering moving its primary stock listing from Paris to New York. TotalEnergies' board asked Pouyanné to look into it, he said, and the company plans to make a decision by September.
Pouyanné isn't the only one contemplating this move. Shell CEO Wael Sawan has said that his London-based company might also consider moving.
European companies of all sorts have been adding listings in the U.S. in recent months to reach more shareholders and access new capital markets, among other reasons. European oil companies have industry-specific motivations for considering it. They are under pressure from regulators and investors on their home continent, and the U.S. is considered to be more hospitable for them.
American investors have continued buying stocks of oil-and-gas companies even as most European fund managers have shunned them. European investors, including sovereign-wealth funds, have backed away from fossil fuels because of climate concerns. European governments have also imposed windfall taxes on oil company profits that industry supporters say are punitive.
The diminishing shareholder base for European oil stocks has led to a valuation problem, analysts and European executives say. Pouyanné complains that his company earns a comparable amount of money to Chevron, but is valued for much less. In 2023, both companies reported about $21 billion in net income, but Chevron's market cap is $300 billion, while TotalEnergies' is $180 billion. Chevron trades at 13 times its expected 2024 earnings per share, while TotalEnergies trades at eight times.
Pouyanné thinks that the company may need to follow its shareholder base, which is increasingly in the U.S.
"We've lost 7% of French shareholders over the last four years, largely because of regulations and the pressure that's being put on them," he said at a French Senate hearing on Monday, according to a translation of his remarks. "Conversely, American shareholders are buying our shares, and the proportion of American institutional shareholders has risen from 37% to 47%."
Investors can buy American depositary receipts of TotalEnergies in the U.S., but Pouyanné thinks the foreign listing and issues like currency impacts on ADRs dissuade some shareholders. "They don't like it, " he told the French Senate.
Some analysts have supported the idea of European oil companies gaining more exposure to U.S. investors. Citi analyst Alastair Syme wrote recently that he believes "the European energy industry has few supporters" on the continent and that a change of location might be helpful.
U.S. oil companies like Exxon Mobil and Chevron have expanded their advantage over European companies by using their higher-valued equity to buy other oil companies. Exxon, for instance, is buying the big shale producer Pioneer Natural Resources in an all-stock deal. "European peers cannot obviously participate in this consolidation, burdened by a significantly higher cost-of-equity than their US brethren," Syme wrote.
But Syme also sees reasons for the European majors to stay put. European companies may get some business opportunities for political reasons, he suggested.
"When it comes to securing access to new hydrocarbon opportunities and resources, flying a different flag to your competitor may be a key advantage," he wrote. "For instance, in the recent competitive auction for access to the giant Qatar LNG expansion, it looked pretty clear to us that the seller (effectively the country of Qatar) was motivated not just by price, but also to the benefit (perhaps a security benefit) of flying US, British, France and Italian flags" over the site.
TotalEnergies may be able to enjoy both benefits: a U.S. stock listing and an association with the French government. Moving the stock listing wouldn't necessitate moving TotalEnergies' headquarters. Pouyanné assured the French government that TotalEnergies would still be based in Paris, and would keep a secondary stock listing there even if the company decides to move its primary listing.
TotalEnergies has been closely associated with France since it was founded in 1924. At the time, its existence was considered important to French energy security. For many years, the government owned a substantial chunk of shares.
Although the government sold the vast majority of its shares more than 30 years ago, moving the stock listing could still create a political backlash for TotalEnergies. Shell angered some Dutch politicians when it said in 2021 that it would move its headquarters to London and drop the words "Royal Dutch" from its name.
Shell also appears to be looking at the idea of moving its primary stock listing out of Europe. Wael Sawan, the CEO, told a Bloomberg columnist this year that the company would consider migrating the listing to New York if it can't close its valuation gap with U.S. peers by the middle of next year. Asked whether the company is planning to move the listing, a Shell spokesman wrote that "We're in a sprint and the focus remains delivering more value with fewer emissions -- not moving the company headquarters."
BP, whose shares trade for eight times this year's expected earnings, could also be tempted to move its London listing. The company didn't respond to a request for comment.
Write to Avi Salzman at avi.salzman@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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May 01, 2024 03:15 ET (07:15 GMT)
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